Boulder may ask voters to approve new tax on recreational marijuana

Idea one of many revenue-related ballot measures under discussion

The city of Boulder is considering asking voters to approve a new, additional sales tax on retail marijuana. Medical marijuana is taxed at the same rate as other retail sales.

If you go

What: Boulder City Council study session

When: 6 p.m. Tuesday

Where: Boulder Municipal Building, 1777 Broadway

More info: To read the memo on potential November ballot measures and see the complete agenda, go to tinyurl.com/d2axyba.

Boulder may place a sales or excise tax on recreational marijuana on the ballot.

City officials aren't yet recommending a specific tax rate and are waiting to see what rate the state Legislature adopts.

However, Boulder City Council members will discuss a possible marijuana tax at their study session Tuesday, which includes a discussion of all revenue-related ballot measures.

Voters also may see a ballot measure on a transportation maintenance fee or tax to pay for road and transit improvements.

How much to tax marijuana is one of many local regulatory questions raised by the passage of Amendment 64, which legalized possession and use of small amounts of pot and directed the state to come up with a regulatory regime for retail sales.

Medical marijuana is taxed at the same rate as other retail sales.

A state legislative panel earlier this month recommended asking voters for a 15 percent excise tax and an additional 15 percent sales tax.

Earlier this week, Councilwoman K.C. Becker said she worried such a high tax rate could make it hard for local governments to levy their own taxes and could discourage medical businesses from converting to recreational sales.

Advocates for legal marijuana have said excessively high tax rates on pot could make it harder to get rid of the existing black market for the drug.

Becker said she wants at least a portion of a tax on marijuana to be earmarked for education and prevention efforts aimed at teenagers.

"The state isn't earmarking theirs for these purposes, and I just think it's logical to use some of it for the purpose of education," she said.

Senior Assistant City Attorney Kathy Haddock said the city has several options. It could levy a differential sales tax that charges an additional tax above and beyond the base sales tax rate, or it could charge an excise tax, which would be assessed on an earlier part of the process and capture more of the market.

Excise taxes could be collected on grow operations and infused product manufacturing facilities, which make up a large percentage of Boulder's marijuana businesses.

Haddock said city officials are aware that very high taxes could encourage sellers and growers to remain underground, but they aren't sure what tax rate would create that effect.

"We're trying to look at the impact of the tax," she said. "As to what that impact is and at how high, we don't know."

Boulder Mayor Matt Appelbaum said what Boulder does will depend on what the state does. If the state structures its tax such that cities get a cut, Boulder may not need its own tax.

There also is the question of whether a state sales or excise tax will be approved by the voters.

Appelbaum said there may be a case for waiting to see if a state tax passes and considering a local tax next year.

"This depends so much on what the state does, and even then, it depends on what the voters do," he said.

Boulder council members will share their opinions Tuesday on that and other potential ballot measures. If the council decides to place a marijuana tax on the ballot, it would decide this summer.

Boulder attorney Jeff Gard, who represents several marijuana business owners, said government shouldn't treat the industry like a cash cow.

"People have this idea that these businesses just mint money," he said. "They have this idea that no matter what government does to them, they'll be fine."

Because marijuana is illegal at the federal level but those in the pot business still need to file federal taxes, they end up paying high tax rates. That's because they can't write off any of their business expenses, and all their revenue ends up looking like profit.

Gard said the effective federal tax rate on marijuana businesses can be as high as 60 percent.

"Why would Boulder want to tax a business that is already going to be strapped by the federal government?" he asked. "I understand they want more money, but that will come if they have vibrant, thriving businesses."

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